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Measuring Hospital Efficiency with Data Envelopment Analysis: Nonsubstitutable vs. Substitutable Inputs and Outputs

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Abstract

There is a conflict between Data Envelopment Analysis (DEA) theory’s requirement that inputs (outputs) be substitutable, and the ubiquitous use of nonsubstitutable inputs and outputs in DEA applications to hospitals. This paper develops efficiency indicators valid for nonsubstitutable variables. Then, using a sample of 87 community hospitals, it compares the new measures’ efficiency estimates with those of conventional DEA measures. DEA substantially overestimated the hospitals’ efficiency on the average, and reported many inefficient hospitals to be efficient. Further, it greatly overestimated the efficiency of some hospitals but only slightly overestimated the efficiency of others, thus making any comparisons among hospitals questionable. These results suggest that conventional DEA models should not be used to estimate the efficiency of hospitals unless there is empirical evidence that the inputs (outputs) are substitutable. If inputs (outputs) are not substitutes, efficiency indicators valid for nonsubstitutability should be employed, or, before applying DEA, the nonsubstitutable variables should be combined using an appropriate weighting scheme or statistical methodology.

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Authors and Affiliations

  1. Department of Managerial Studies, University of Illinois at Chicago, 601 South Morgan Street, Chicago, IL, 60607-7123, USA

    Darold T. Barnum

  2. Department of Information & Decision Sciences, University of Illinois at Chicago, Chicago, IL, USA

    Darold T. Barnum

  3. Department of Pharmacy Administration, University of Illinois at Chicago, Chicago, IL, USA

    Darold T. Barnum

  4. Center for Pharmacoeconomic Research, Department of Pharmacy Administration, University of Illinois at Chicago, Chicago, IL, USA

    Surrey M. Walton

  5. Department of Economics, University of Illinois at Chicago, Chicago, IL, USA

    Surrey M. Walton

  6. Sisters of St. Francis Health Services, Inc., Mishawaka, IN, USA

    Karen L. Shields

  7. Center for Pharmacoeconomic Research, Department of Pharmacy Practice, University of Illinois at Chicago, Chicago, IL, USA

    Glen T. Schumock

Authors
  1. Darold T. Barnum
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  2. Surrey M. Walton
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  3. Karen L. Shields
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  4. Glen T. Schumock
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Correspondence to Darold T. Barnum.

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Barnum, D.T., Walton, S.M., Shields, K.L. et al. Measuring Hospital Efficiency with Data Envelopment Analysis: Nonsubstitutable vs. Substitutable Inputs and Outputs. J Med Syst 35, 1393–1401 (2011). https://doi.org/10.1007/s10916-009-9416-0

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  • DOI: https://doi.org/10.1007/s10916-009-9416-0

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